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NSW Security of Payment legislation – Supporting Statements, more paperwork?

As is now well known, amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act” ) commenced on 21 April 2014. For contracts entered into after 21 April 2014, Principals and Contractors will need to ensure their procurement and payment systems comply with the amendments to the Act. This article will address the “paperwork” position between Supporting Statements and the Head Contractor obligations to sub-contractors.

Mandatory Supporting Statements for Head Contractors

As has now become familiar, the amendments to the Act require payment claims from a Head Contractor to a Principal to be accompanied by the supporting statement. A template supporting statement is contained on the NSW procurement website.

The supporting statement must include the following detail:

  • a declaration that all sub-contractors and suppliers have been paid in relation to the construction work.

The requirement has been introduced to address the practice of falsely sworn statutory declarations about payments owed to sub-contractors.

The times and frequency at which the Head Contractor’s payment claims are made will be governed by the terms and conditions of the contract between the Head Contractor and the Principal.

The supporting statement is given from the Head Contractor to the Principal, yet it also serves as confirmation that the Head Contractor has paid all of its sub-contractors. There is no requirement that the Head Contractor receive this confirmation or a supporting statement from its sub-contractors.

Head Contractor obligations to sub-contractors under Worker’s Compensation Act, Payroll Tax Act and the Industrial Relations Act.

The paperwork doesn’t end with the supporting statement.

Head Contractors must be aware that there is a separate legal obligation under the Worker’s Compensation Act, Payroll Tax Act and the Industrial Relations Act. A Head Contractor (as defined in worker’s compensation, payroll tax and industrial relations legislation) may become liable for worker’s compensation premiums, payroll tax and remuneration payable by its sub-contractors if it does not obtain a subcontractor’s statement that the sub-contractor has paid all the relevant premiums, tax and remuneration.

Accordingly, Head Contractors should continue to require their sub-contractors to provide the statements notwithstanding the additional obligation for the Head Contractor to provide supporting statements under the Act. The two obligations stand alone and are not related.

How often should the Head Contractor obtain the subcontractor’s statement?

The Worker’s Compensation Act states that the statement should be obtained “in respect of the work done in connection with the contract during any period of the contract” and include a copy of the relevant insurance.

Payroll Tax Act states “during a period” and “at the end of a financial year”.

Industrial Relations Act states “work done in connection with the contract during any period of the contract”.

There is therefore no clear answer to when and how often the sub-contractor’s statement must be obtained. To comply with each piece of legislation, the statement must be obtained not less than annually and also for the duration of the works. If the works are for longer than one year, a statement must be obtained at the end of each financial year and at the end of the works. Further, pursuant to the Industrial Relations Act, copies must be kept for a period of not less than 6 years.